84. Memorandum From C. Fred Bergsten of the National Security Council Staff to the President’s Assistant for National Security Affairs (Kissinger)1

    • International Oil Situation

The oil companies have now decided to ask for a postponement in their negotiations with the Persian Gulf producing countries, so that “both sides can consider their positions further.”2 The companies will thus be indicating that they are unwilling to make any further concessions at this time, let alone accept the demands of the Gulf states.

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The result could be a shutdown of Persian Gulf oil within the next day or two. The most likely date for action is February 3,3 when all of the producing countries will be meeting in Tehran.

However, any such shutdown will be very unlikely to last more than a week—and would probably last only a few days. A shutdown of such short duration would have no significant impact on consuming countries. The Gulf states recognize as much, and in fact would be taking the action only to dramatize their solidarity and their willingness to oppose the companies relentlessly to “get their just rewards.”

The most lasting result of the refusal of the companies to negotiate further is that the Gulf states will now probably legislate their demands unilaterally. This is what Venezuela did in December,4 with the result that it now probably has the best arrangement of any of the producing countries. Iran has announced that it will take such action if a negotiated agreement is not reached by the morning of February 3, which now seems highly unlikely. In view of this probable outcome, I am personally dubious that the Gulf countries will see any need for a shutdown.

The companies have apparently concluded that the Gulf states are going to get what they want, either through negotiation or unilaterally. The issue thus becomes who gets the blame for the sharp increases in oil prices in Europe and Japan which will result. The companies apparently would rather have the Gulf states legislate and thus get the blame, rather than reach any negotiated settlement, even if it were a few cents per barrel cheaper for the consumers.

This same consideration—who gets the blame for the almost inevitable outcome—makes clear why it is even more important now for the U.S. Government to stand aside from the issue as much as possible, particularly the substance of the negotiations. The producing countries are going to get what they want. The consuming countries are going to be hosed. The companies are going to stay in the middle and try to come out as cleanly as possible.

As a Government we could only lose with at least two sets of the actors, and possibly all three, if we were to take sides or try to moderate a settlement at this late and emotional date. And any U.S. Government involvement at this delicate stage might easily affect our Arab/Israeli efforts adversely, since it would so clearly label us as pro-company and thus conjure up new images of American imperialism.

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Unfortunately, your decision to cancel the Senior Review Group meeting scheduled for February 25 on this issue leaves the Government without a framework in which to make tactical decisions as the situation progresses. Fortunately, State is now pulling back from the activist role it was taking earlier—and I am actively encouraging them to do so. They are recalling their oil expert from London, where he has been getting pretty deeply involved in the companies’ deliberations and has been under fierce pressure to do so.

I do not preclude the possibility that State will crack under the pressure of the companies to intervene, however, especially if there is a shutdown and the Europeans suddenly panic at the prospects. I will try to avoid their doing so. I may have to call on you for help, however, and it will be difficult to act in view of our failure to seize leadership on the issue up till now.

All of the above pertains to the Persian Gulf negotiations. Libya is a separate issue. It is relatively quiet at the moment, surprisingly so, since Libya is by far the most militant of the producing countries—in its demands, in its efforts to politicize the issue, and in the strength of its bargaining position. However, Libya is probably just waiting to see the outcome of the Persian Gulf before deciding how far to go—they want to base their demands on the Persian Gulf settlement plus a bonus for their proximity to European markets. A Libyan shutdown is also a possibility and will almost certainly occur in sympathy with a Gulf shutdown if one occurs. The end result is likely to be the same, however: unilateral legislation to realize its demands.

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 367, Subject Files, Oil 1971. Secret. Sent for information. Kissinger and Haig initialed the memorandum. A handwritten notation reads: “update on oil.”
  2. INR Intelligence Note, RECN–1, “The Petroleum Negotiations: Initial Positions,” February 1, examines the basic stances of all concerned parties. (Ibid., Box 1271, Saunders Files, Middle East Oil, 1/1/71–2/1/71)
  3. The negotiations broke down late in the evening of February 2 as the company negotiators informed OPEC that they could not accept OPEC’s formulation of assurances, and because of the omission of Eastern Mediterranean crude from the proposed settlement. (Oil Task Force Situation Report #21, February 3; ibid., 2/1/71–12/31/71)
  4. See footnote 5, Document 74.
  5. The Senior Review Group meeting was to have discussed the January 24 response to NSSM 114, Document 80.